How We Paid Cash for Our First Home

This is a guest post from Crystal Paine, the Money Saving Mom. Paine is a wife, homeschool mom to three, self-proclaimed minimalist, and wannabe runner. For practical help and inspiration to get your life and finances in order, visit her blog, Money Saving Mom, or purchase a copy of her brand-new book, The Money Saving Mom’s Budget.

When my husband and I got married nine years ago, we had an audacious dream of paying cash for our first home. At that time, it was very much a far-off dream — we were just trying to survive the rigors and expenses of law school without going in debt. That alone was a seemingly gigantic feat.

But after three years of law school, my husband did graduate without debt, passed the bar, and we started planning for the future. Since we’d been renting for almost four years, my husband had a good job, and our second baby was on the way, pretty much everyone expected that buying a house would be in our immediate future.

I mean, after all, isn’t buying a house the responsible thing for a young couple to do? Well, maybe — or maybe not. We didn’t have much money in savings, and we weren’t sure how long we would be living in the town we were in, so we chose to go against conventional wisdom and continued renting.

Setting a goal
Within the next six months, my husband lost his job, we relocated to another city so he could find work, I had some significant health problems in my pregnancy which resulted in numerous hospital and doctor’s bills, and we had our second baby. Needless to say, we were incredibly thankful that we hadn’t taken out a mortgage and then had to deal with the headache of trying to sell a house at the last minute — especially since the housing market was poor in our area.

It was around this time that we were first introduced to Dave Ramsey. While we didn’t have any debt and had always lived on a strict budget, going through his Financial Peace University Class fired us up to set big financial goals and work hard to accomplish them.

One of the big goals we decided to aim for was paying cash for our first home. We crunched a bunch of numbers and realized that, if we continued to live simply and frugally and worked hard to bring in extra money through side jobs, we could save enough over the course of five years to pay cash for a starter home.

It felt like a mammoth goal and we weren’t sure if we could do it, but we decided to go for it anyway. We figured that, even if we didn’t make our goal in five years, we’d at least be a lot closer to it than if we didn’t try at all! Plus, from our calculations, we’d be in a lot better position to wait to buy — even if it took seven years to save up enough for a house — than if we were to go ahead and get 15-year mortgage and pay it off early.

We knew that we could buy a decent starter home in the area where we were planningto move for around $100,000 to $110,000, so we divided $100,000 by 60 (since there are sixty months in five years) and set a goal to save $1700 every month. Because we didn’t have any debt or school loans, and because we lived simply and frugally, we were able to live on significantly less than we were making, thus freeing up a good chunk of money to put towards our house savings each month.

Gazelle-like intensity
Once we set this goal and I blogged about it publicly, we were incredibly motivated to work as hard as we could and delay every purchase we could in order to put as much as possible into our house savings fund. We used coupons, ate a lot of meatless meals, shopped at thrift stores, cooked from scratch, brown bagged it, continued to use our old and worn-down furniture, didn’t replace anything that wasn’t an absolute necessity, limited our going out to eat, only had one car, stayed home a lot, used gift cards from Swagbucks to buy any non-necessities, bought eye glasses from Zenni optical, learned to be content with what we had, and continued to live on a strict written budget.

Meanwhile, we also looked for ways to increase our income. I blogged, wrote ebooks, and took on freelance writing jobs. My husband did contract work, started his own law firm, and helped me running the blogging business.

That first year, we didn’t always make our monthly savings goals. We had some unexpected medical bills and car problems that ate up a portion of our savings. But we kept plugging away, throwing whatever extra we could squeeze out of our income toward savings.

The few years of long hours and hard work we’d put into blogging started to really pay big dividends and by the second year, we were meeting and exceeding our monthly savings goals every single month. As our house savings fund increased, we began to get so excited that we kind of went overboard and worked long, long hours in order to meet our savings goal even faster. I wouldn’t recommend putting in such long hours, missing so many social events, or sleeping so little, but the effort paid off because, at the end of two and a half years, we paid 100% down on our first home!

Even though I wish we had given ourselves a little more breathing room and margin while saving, it was thrilling, fulfilling, and exciting to achieve this goal — in half the time we had initially planned. And we are thankful we chose to take a counter-cultural route and pay cash for our house. Not having a mortgage payment has freed us to continue to save aggressively toward other goals, increase our spending in areas that really matter to us, and give generously to needs in our community and around the world.

If possible, it is always better to pay cash instead of borrowing. Some (most) people get hung up on “but I can use mortgage interest as a tax deduction”. The math of borrowing the money to purchase a house doesn’t make sense to use the interest for a deduction. It makes better sense to donate to a worthy cause and use that as a deduction instead. And, ever notice what the tallest buildings are in a city? Banks and insurance companies. . .

Ah but there is that invisible thief, inflation to consider, when you have debt, it actually works in your favor. By having debt, you’re in effect getting something at today’s price while paying for it with your future dollars which are devalued due to inflation. Thus a mortgage can act as a hedge against high inflation.

Also consider oppertunity cost of the money you plunked down. If instead you got to keep the money for 30 more years, you could continue earning on it. Typically you’d have to do something like invest in the stock market to earn a better return than the interest rate you pay, so there must be some risk tolerance there. However, there are also some fairly risk free ways to use that money, involving tax breaks and credits you could put that money towards instead (IRAs, education, charities). Caveat is that this requires definate financial discipline and money management skills to even attempt.

Not to say that debt always is a good choice, but there is more to debt than just the mortgage tax deduction to weigh in it’s favor.

I agree to disagree. This is one way of thinking that is getting America in some serious debt. I believe cash is always better. Then you can use your future money to buy other things that you want! Rather than have to make a payment with it. It frees up your future.

If everyone put as much thought and calculation into going into debt as you did in your post. Debt wouldn’t be near the problem that it is.

The problem is that people go into debt without thinking about it.

Paying cash for things requires you to be intentional about your financial decisions.

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sarahsays:

24 January 2012 at 2:15 pm

You must have read the same Kiplinger article I read this month – they agree that a mortgage is a good investment when you consider inflation. Keep it, don’t overpay on it. Money saving mom lives in a very low cost of living area – the housing prices she lists are similar to down payments in our area.

There are two flaws in your argument about opportunity cost and hedge against inflation. Actually three.

1. Opportunity cost is a great argument for businesses to make, but a lousy one for individuals to use in their personal finances. Usually people trying to lend you money make this argument. Don’t listen to them. Why?

2. Because comparing stock returns, which are very risky, with the guaranteed rate of return of not paying interest, is comparing apples to oranges. Not paying 4.5% interest on your mortgage is like getting 4.5% interest on a Certificate of Deposit – zero risk involved (ask your bank for a 4.5% CD and when they stop laughing, they will ask you politely to leave). Stocks CAN have a greater rate or return, or, like my GM stock, they can go down to NOTHING, which leads to…

3. You can end up losing all your money – or a lot of it – in stocks, and at the same time, see your house decrease in value by half, while the mortgage debt remains the same. Suddenly, you are upside-down on a mortgage, and broke as well. Whereas you could have had a paid-for house that would be worth something.

Far-fetched scenario? Not really, it happened to a lot of people in February of 2009. They lost their shirt in the stock market and foolishly sold out, locking in their losses. They owed more on their houses than they were worth.

I could see someone making your argument in 2005. But today? We know better.

Usually, for people who make these “opportunity cost” arguments, the point is moot. They are in debt up to their eyeballs and have no cash to buy a home. So they use these types of arguments to make themselves feel better about their situation.

They aren’t flat broke – they are hedging for inflation! Right? Riiiiiight!

Robert: you only responded to csdx’s mention of opportunity costs, and all you succeeded in saying is “people are bad at investing their money smartly.” If your argument is that most people just aren’t cut out to invest in something besides a house, then fair enough.

Also keep in mind that in the event that interest rates go up, you will be able to get your higher interest CD while still getting to keep your low mortgage rate (unless you got an ARM). In that case, if you plunked all your money down on the house, you’d be missing out.

No one can say that paying in cash is always right, or holding a mortgage is always right. You have to take into account the situation regarding present and projected costs.

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Charliesays:

20 June 2014 at 8:43 pm

The problem with paying for things with money that you don’t really have is that it creates a false sense of security and when the first financial hardship comes you essentially have built a house of cards. Paying cash for everything is the way smart people use their money. I started a business with the only use cash philosophy and have doubled my income every year for the past six years. Everytime I made money I used some of the funds to re-invest in my business thus creating more income potential and I run a completely debt free business.

I rent right now too, but I agree with Dave Ramsey’s philosphy of paying for everything with cash 100% If you don’t have the money for something…DON’T BUY IT! If you want it really bad SAVE MONEY and then buy it when you actually have the money in your bank account!

I learned this lesson the hard way when I financed my first car which was a Jeep Wrangler. It was an awesome car and mainly I bought it to impress the ladies, but what actually happened was I ended up hating that vehicle cause when I realized how much I was paying for it it made me sick. If I had gone all the way through the loan cycle I could’ve essentially bought TWO jeep wranglers for the same price!! That was a crappy feeling so since then I have paid for everything with cash. I bought my first work vehicle with cash. No monthly payments….BAM! All the money I made went right into the bank minus unavoidable expenses like gas/insurance. Credit is not your friend it is your slave master! Don’t believe the lies spread by our society which is currently drowning in debt. Be smart and like dave ramsey says, “live like no one else now so you can live like no one else later!”

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Samsays:

06 August 2014 at 9:00 pm

if interest is such a little thing then banks will invest money in stocks instead of lending and going through pain of foreclosures, paperwork, stupid law suits etc. You are saying banks are naive to make profits and you are the smartest on the planet.

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johnnysays:

07 August 2014 at 6:34 am

the only time a person should take out a mortgage is when they are doing it from a business minded perspective. if you have 150k saved and you plan on living in the place for 10 years, especially if you under 40 and semi healthy. if your comfortable taking risk in the stock market then its better to take a risk on yourself. to keep it short if lets save a 150 mortgage on a house in 10 years at 5.1 interest adds up to 60k on a 200k house. plus ability to negotiate 10% less than people paying mortage when home sales is slow. no matter what the profit margins you make you have to make a monthly 8000 after taxes yearly for 10 years to justify a mortgage. otherwise your hoping for a bubble. for your property to get over valued and you to sell before the bubble popped. while waiting your paying property tax, doing maintenance and paying for repairs. ill restate it only makes sense to act as a business. buying forclosed property every 4 years and fix up first one while living in it and getting tenants. once income stable buy second house an then increase amount purchasing based on market and financial health. you are using the money you didnt spend on on one property for a riskier investment. when its an investment its ok to pay interest to grow your money, but its unwise to buy a house as a consumers produc thatt that you are personally gonna use.

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Paulasays:

07 August 2014 at 8:11 am

Johnny, I wholeheartedly agree that too many people buy houses that are much too expensive on much too long a mortgage. But while having a mortgage for one’s residence may not be the perfect plan, I disagree that it is always bad. It is the only thing worth going into debt FOR.

RENT is bad, and everybody has to live somewhere. My parents had two modest mortgages and had a paid for home in retirement. They never paid a single day’s rent in their lives. What do you ever have to show for rent? It is money down a rat hole!

My husband and I have been married 41 years and are retired in a paid for home. When I see people our age still paying rent, now THAT is truly stupid.

My parents taught me to fear rent. They did. They felt once you got started renting, it would be a trap you might never get out of; best to build equity on the way to owning.

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cathleensays:

23 January 2012 at 4:10 pm

This country is just too big and too varied for some of these situations to be applied so broadly.

I live in the Bay Area. Had I tried to pay cash for a house I’m sure the FBI would have investigated me as a drug dealer!

I paid $220,000 for my house 20 years ago and it’s now worth (market value today) $1.1 million. It’s not a mansion, it’s a 2 bed 2 bath house form 1926, in a nice neighborhood which is desirable for lots of reasons but mostly because it’s in the heart of Silicon Valley and this is where the jobs are.

But I think the lessons definitely can apply to others in different situations!

No, it’s not. This kind of blanket statement doesn’t work for everyone. It may be true for a lot of people who aren’t able or willing to invest their money in other areas, but it’s simply not the case that it is always better. For a significant number of people it is often not better, even for those who have the cash.

Its always better to save money for down payment and earn interest on it, in a stagnant market. If you get mortgage outright, you’ll have to pay interest on it.

Crystal, yours is a hugely successful blog, because of all that hard work. Its great that you completed the goal in half the time you allocated.

I have the same goal in mind and in my third year. Only a few months back I realized the potential of earning extra money through blogging. Now since some money started coming, I think I can go faster from now on.

Because I had bad credit, and was poor, I paid cash for my first place. And my second.

What paying cash did is free me up to save oodles of money to buy other property.

Today I’m financially secure, thanks to that first big decision. Some retired friends just bought a $1mill+ property. Good for them, but I find a lot of comfort that I will never have a house payment for the rest of my life.

No one seems to be stating the point that I think is so obvious. If you live in a city with high rent then you are throwing your money away every month in a way that cripples your chances at saving meaningfully. Currently my rent for a studio apt in Wash, DC is $1475, and this is a bargain. High rent makes it difficult to save money. Home prices are also high in DC, even starter homes. So the idea of paying cash in DC is out of reach. Wouldn’t it be better to put that $1475/mo into a house payment where it’s serves me better than turning to dust in the wind with the landlord?

Plus, the writer did change her lifestyle to save for enough cash for a house for several years. All power to her, but I’d much rather put the money I’d be paying rent with into owning my house than saving money and trying to pay rent at the same time.

I didn’t do the 100% down, but the freedom that came with mailing in my final mortgage check felt like I’d just lost 100 pounds. And my mortgage was reasonable and well within my income. But it just felt so gooooood!

It’s great to be able to have a shared goal like that, where you both can pull together. My own husband plays the role of, um, balancing my gazelle-like intensity with his otter-like playfulness. That’s a good thing, but in a different way. Kudos to you both!

My partner and I are considering doing the same. But … house prices in the UK are significant – usually around 6x your annual income. Saving for a couple of years and paying off your house doesn’t seem remotely possible. I assume your house prices are way, way lower?

So true… houses are so expensive here, especially in the South East! Still, there are things you can do. I wish my parents had never scaled up to the bigger house they bought when I was 7. We literally moved round the corner, but from a semi-detached 3 bed with a manageable garden to a detached 4 bed house with a huge garden. We didn’t need to, we’re a family of four! Now my parents live in a house with a garden that’s too big to manage and all my mother does is whinge about it.
“Wah, I’ll have to work til I’m 70 to pay off this house”. “Wah, this house needs so much cleaning”. “Wah, we own too much junk”.

Of course, the house we moved to also had a shoddy back extension and tiny kitchen so they re-mortgaged to pay for a new extension. Yes, it’s nice, but now my father keeps talking about how his pension is going to be oh so much less than he thought etc etc.

I’ve told them that when my brother and I move out for good (uh… we’re not called the boomerang generation for nothing) then they should split the house into an upstairs and a downstairs flat, live downstairs and have the upper flat income to support them in their old age. My mum is all for it, but I don’t know if my dad would go for it.

I’d love to be able to do smething like that. But in Madrid with the current wages and home prices it is impossible in a reasonable amount of time (5 years). I think you need like 10, and considering you see your income going up and up.

Last saturday in a house party (frugal fun) I met a friend’s friend who was fixing a house that belongs to his dad in downtown Madrid. I’d love to do that, but my parents do not own a home I can fix (and I don’t have time). But I liked the “thiking out of the box” perspective. I should try to find something like that I can do.

This reminds me of a quote (that I’ll likely misquote)…that has one man condemning the eating of lentils by saying, “If you would learn to be subservient to the king you would not have to eat lentils.” and the man replies…”If I eat lentils I will not have to be subservient to the king.”

“The philosopher Diogenes was eating bread and lentils for supper. He was seen by the philosopher Aristippus, who lived comfortably by flattering the king. Said Aristippus, “If you would learn to be subservient to the king you would not have to live on lentils.”

Said Diogenes, “Learn to live on lentils and you will not have to be subservient to the king.”
― Anthony de Mello

Very inspiring story. That is something that would be difficult for me to do, however. I’m a single mom. I work full time and make a middle class wage. If I took $1700 off my take home monthly salary this, month, I could pay my mortgage and possibly the heat bill. There would be nothing left for gas, food or any of the rest of my utilities! And those are my needs, not my wants!

I think is something more do-able for a two earner household. However, I could use a similar principle to save for my next car in the same time frame. It’s also a strategy that would work for paying down a home faster, thus producing a substantial savings in interest.

To the person who asked ‘why pay cash for a home’…the interest savings are huge, especially in the beginning. I’ve been paying on my low interest, 30 year mortgage for over 7 years and have only paid down about 10% of what I owe! In mathematical terms (rough calculations), I’ve paid over $60,000 and only paid down $10,000 on my debt. Mortgages are interest loaded on the front end, so you pay more in interest at the beginning.

All in all, a good article; I just need to apply it a different way to my own life.

I too am a single parent and have already managed to shave 5 years off of my mortgage by being frugal. The small extra payment towards the principal I send every month really makes a difference in the long run. It will take me 23 years instead of 30 to pay off my house. I’ll have a fighting chance for a decent retirement with those extra 7 years put towards savings. It’s the commitment that helps me be successful with goals. Excuses never seem to get me very far.

Just out of curiosity, is it better to pay down the mortgage early or put more towards saving for retirement early?

A lot of articles I’m reading warn that it’s better for retirement to save as much as possible as early as possible — yet people also keep telling me to save a little less for retirement for a few years so I can save more for a home.

Needless to say, I’m confused! I’m interested in hearing people’s experiences. How do you make this decision?

Beth, its a good question and there isn’t one-size-fits-all answer mainly because it depends on your psychological disposition towards being debt free on your home as well as your unique circumstances. Some people feel not having a mortgage is a huge weight off their shoulders and go in that direction, while with others its not as big of a deal, still some try to do a little of both paying down debt and saving for retirement. A big factor is also your income and mortgage size which may depend on your lifestlye and where you live. If I had a small mortgage I probably would pay it off very quickly to be free of the ball and chain but we bought in an up market and prices have now declined consequently while I am normally debt averse and pay everything off quickly I am choosing not to do that with the mortgage because we are barely treading water with home prices. I am putting as much into retirement accounts as possible due to protections (limited) from bankruptcy and creditors if worst case scenarios occur while paying our regular payment. My situation aside (as everyone is different) if you are saving for a home you could always put the money in a Roth IRA every year and the contributions (not earnings) can be taken out at anytime or not if you don’t need. If you are trying to decide between retirement and paying down mortgage that is a personal decision but try to atleast take advantage of all matching issues on 401ks if available. In my experience I’ve seen people put too much emphasis on home ownership as their main source of wealth instead of just a piece of their net worth pie. Many people I knew kept upgrading over the last 10+ years or refinancing to fuel their spending, so instead of owning their small original home they either don’t own now or still have a large mortgage. The key is making sure you have enough income for your expenses in your retirement as you can’t pay your bills with your home. Ideally, having no mortgage and a decent savings would be great, but I would rather have $2 million saved and no home if had a choice because my income stream would handle all my expenses. Diversification is great (a home being part of that) because typically not all of your assets move in the same direction. Compounding is also fun as you get to watch your dividends and gains grow exponetially over the years in your retirement accounts, the early you start saving the better shape you will be.A long answer and not a complete one and I could go on adding other caveats about the investing in the stock market, bonds, real estate, etc., from mistakes I’ve made and seen others make, but if you try to learn a little and tinker a bit you’ll probably be in good shape.

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Bethsays:

23 January 2012 at 10:07 am

@Superheroes — thanks for the reply! I’m in Canada, so the numbers are a bit different here. (No mortgage deductions, for instance.) Alas, no RRSP matches from employer either, and no company pension.

I haven’t bought a place yet, and I’m finding it very hard to let go of the money I’ve saved for a down payment. I appreciate multiple points of view — I want to make sure I’ve got all the bases covered.

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Superheroes do overcomesays:

23 January 2012 at 10:20 am

Beth,
Can’t really comment on the Canadian angle. But there should be Canadian cost-to-rent vs cost-to-own calculators and if you are break-even or much cheaper to rent and you are happy enough renting with your living space all the other factors that go into owning vs. renting, then hold onto your money, invest at your comfort level until you are ready to buy. Don’t know what real estate is like there but you can play the high-lows when you are ready, if it is cyclical like in U.S.

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Debbie Msays:

23 January 2012 at 1:09 pm

It depends on what the markets are doing. I went for the retirement savings during a period when the stock market did not go up as high as my mortgage percentage, so I should have put more into my mortgage. I had no way of knowing that, and generally the market grows faster than 5.3%/year, so I’d make that choice again.

Another option is to cover your bases and do both: make your minimum mortgage payments and put in a reasonable amount toward retirement and then, split your extra money and do some of each.

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NIck in Masssays:

15 February 2013 at 8:35 pm

Something to remember: TIME. Max out your retirement funds early and get a good chunk put away and let time compound your retirement funds. Then do what my friend did and saved just $50/wk from his check and added that $200 to his mortgage payment each month. The result? Paid off his 30yr mortgage in under 13 yrs. After that , he took that mortgage payment and threw it on his car payment each month and finished it off in 5 months. Good thing he did that as he got laid off from his job a month after the car was pd for….! Since he was now debt free , the unemployment covered all his expenses while he looked for a new job. Debt free is always the way to go. For an eyeopener, just add up all the interest on your house (or rent), car(s) ,credit cards , etc. you pay each month and imagine having that cash to spend any way you wanted to. You’ll definitely change your tune about debt !!!

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Sandysue15says:

23 January 2012 at 4:00 pm

I’m with you, Cheryl. I could save all my income for the next 2.5 years and not come close to saving $100K. But, I like your idea of applying it to other lower ticket items, like cars. Something to think about. Thanks.

Dave Ramsey is great. He’s the epitome of working hard to succeed. I love that you took his program and made it work. I’m in the process of convincing my wife to do this. I’ve heard so many success stories and yours helps.

Congratulations. I imagine the feeling must be fantastic..
That being said :
Well for you Americans it is easy !
Trust me.
Here in Romania we had the worst real estate bubble in recent history.
We still need 16.4 average annual NET incomes to buy a house.Not even a house an appartment.
For you 3 (120.000 $ 3×40.000$) will do.
I gain more than average. My wife was unemployed but she will start working in April.
I know of actually nobody in recent years who managed to do it.
Of course I expect the bubble to burst and prices to get back to 10 times the annual …
Still extremely difficult to save.
Imagine being forced to save 400.000 $ before buying a (small) apartment.
I always aimed for being debt-free and loved “The total money makeover” . Still the goal seems so far away …

Sonja.
The average income in Romania is 4800 Euro /net per year.
I make more as a software engineer.
Still a one bedroom apartment (which I rent) is 60.000 Euro.
I received the parking spaces (2) for free during the period I rent but normally they are also 10.000 Euro each.
As a family you need at least 2 bedrooms and maybe an office.
The 2 bedroom apartments are 75.000 Euros.
The 3 bedrooms – 90.000-100.000 Euros.
Houses are 20 km away (12 miles) and the roads suck.
just watch this index if you don’t believe me.http://www.numbeo.com/property-investment
/rankings.jsp
Country index 15 and city Index (Bucharest ) 16.46
So even New York is better (10.65).

I don’t know if you will see, this Sonja, but this is so true. When I tell Polish people that my family can buy a HOUSE with a yard for 60K in central FL, they are rather overwhelmed. Here in Poland, a typical apartment of about 50 square meters (500_square feet) is $100,000 in our area.

If you want to have something cheaper, you have to go out to the villages but even then, things in the states can be cheaper, depending on the area of the country you are in.

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Paulasays:

02 October 2013 at 1:18 pm

I live in the southern US. In 1993, we paid $53,000 for a standard three bedroom, 1 1/2 bath brick ranch on a little over two acres. It is paid off and listed by the county as having a market value of $84,000 now. It isn’t fancy, but it is comfortable and totally respectable. People think we have a nice place.

The problem with a lot of people today is that they are not content to live in a normal house. They think they must have a half million dollar–or worse–McMansion and take on tremendous debt. I live within walking distance of new McMansions springing up like weeds. People in the know tell me most of the people living in them can’t afford them. We paid a fourth down on our house and paid it off in fifteen years.

I did some checking around and found out one dessert mommy blogger claims to be so poor and won’t even buy hamburger and make her kids a freaking burger once in a while, but lives in a half million dollar house. I’ve decided no more sympathy from me. We could have bought a fancy house with a big mortgage and we wouldn’t be able to buy groceries, either.

I agree you need a place to live. If not doing it from an investers stand point. Then do it from a an inteligent consumer stand point. If average time a person lives in a home after settling down is 25 years for this example. My example since I live in new york westchester is 1000 property tax, 300 average maintenance if handy, 550 average repair cost for a 4 bedroom single family. Paying water bill is about 100 and con ed is about 20 more than an apartment. That 1670*12mnths*25yrs=501000. If the initial cost is 270,000 on low interest of about 5% lets pretend in 25 years you only add 160000 in interest=270k+160k+501k=931000/25yrs=37240/12=3102. 3100 is a great 4 bedroom in westchester.you have mobility also allowing you to make even a 3% daily compounding interest on any money not tied into property. There is no doubt that you are pretected in the long run from rent inflation and the price of property appreciates. But your opportunity to make more money decreases because you used the house as an impulse buy as apposed to an investment. Having a house is like having a child, it mostly puts your priorities in order to make the mature decision since unlike rent if you dont pay for 6 months it wont be eviction move to next place Its forcloser and horrible credit for 7 years. Last of this long opinion, is the stability of rent is actually as secure as a houses increases. The only difference is when you need to down size it takes 30 days notice in an apartment if want to do it the right way. With a house The goverment, con ed and contractor and service men can all decide their rates are going up. You can complain but since its your proerty youll make necessary adjustments to compensate. Using the house as an investment though is great because its lowers the expense and it raises revenue

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Amandasays:

23 January 2012 at 6:16 am

For some Americans it is easy. In my zip code the median home price is $340,000. And I live in an inexpensive area for the metro area I live in.

I just searched eight zip codes in my area, and you can buy a completely stripped, in bad shape, 40 year old condo in a crappy part of town for $100K.

I couldn’t find a single stand-alone house for under $225K, and the one that was $225K doesn’t pass code and you can’t actually live in it.

A friend of mine looked at a real crack house when searching. It was 600K. It needed to be gutted to the brick to be made habitable for people who are not crack addicts.

She bought something a little cheaper by about 100K. Still half a mill. And she was happy to get that. It was considered a deal. Her house has gone up 250K in meantime. So now, she couldn’t even get the crack house for 600K.

Mihai, it depends completely on the area within the U.S. Not surprisingly, the most popular areas to live in are also the most expensive. In many regions, you CAN buy a house for less than $120,000; in many of those same regions, jobs are still relatively scarce. In other areas, $120,000 will not buy you a closet. We live just outside of Boston and our 1200 sq. ft. Cape cost $264,000. (I was told it would run about $80,000 in Arizona or about $110,000 somewhere like Cleveland.) And we got a great deal; the same house in another (higher class) surrounding town could cost as much as $350,000 to $400,000. I’ve seen purchase prices for apartments/condos in Boston or Cambridge for $500,000 and up.

Cost, location, size: pick any two. (In our case we compromised on all three: a house more expensive than we’d wanted, in a location that wasn’t quite what we wanted, and a little smaller than what we’d wanted, but it works and we’ve grown to love it.)

But I understand (well) your point: I would have adored saving up and paying 100% cash, but we would have had to have done it 20 years ago or in another region. (Long story made very short: we were supposed to inherit a house so we didn’t bother saving up to buy, and it went on a reverse mortgage instead.) We wouldn’t be able to pay rent and save like we’d need to in order to buy a house for over $250,000 before we died of old age.

I live in Boston too and agree that 100% cash is very difficult to achieve in this market. Timing is also a factor; when I bought my condo in 2000 it cost $220K and I put just 10% down. Five years later units in my building were selling for $350K and today they’re selling for $450K (Cambridge, unlike most areas of the country, hasn’t seen a downturn in real estate prices). Had I waited until I had more cash, I’d have been priced out of the market. In the meantime I’ve paid the mortgage down significantly and saved enough that I could pay it off, but choose to keep the small balance and invest those funds elsewhere. I’m in much better financial shape having bought when I did than I would be if I had waited even a few years.

Congratulations, Crystal. What a wonderful and inspirational achievement.

I live in a far suburb of NYC where the most basic starter homes are upwards of 500,000 and the taxes for such a home would run about 10,000 on up. On the other hand, my husband is a lawyer (like Crystal’s dh) and he earns quite a hefty salary – comfortably into the six figures. So we would have to save 5X as much as Crystal did – but I am guessing that the salaries in a big metropolitan area like NYC would generally be pretty high compared to the rest of the country. For instance, my 13 year old daughter just started babysitting, and the going sitting rate for tweens around here is $15 an hour. Teacher salaries start at around 55,000. Of course, you have to actually find a job first . . .

In America, all real estate is local. My parents are 3 hours south of me, and in a suburb of New York City, albeit a very distant one. A basic starter home there costs about $300,000. I don’t know that my husband and I would ever be able to buy a house living down there. However, I live in a small city outside of NY State’s capital, Albany. Around here, there are a lot of two family houses, where each floor is split into a three bedroom flat with a kitchen, bathroom and large living area. I rent the upstairs flat in one. The house across the street from me is selling for $124,000. Given that you can rent out one of the flats for $800/month and live in the other, it makes real estate look like a much more attractive purchase. $124,000 isn’t quite twice our annual gross income, so it’s a very doable goal, to buy a house in cash. We may consider it in a few years, if we want to stay in the area.

I live in the Albany area, too. It is very moderately priced. I bought a four-bedroom, 1.5 bath house in move-in condition (nice woodwork, new roof, nice yard) in 2004 for 109,000. But the real estate taxes are lousy. I pay on this house as much tax as my parents pay on their $650K condo in Pasadena. So when I pay my mortgage off early (and I will!), the city and school taxes will still be a significant part of my monthly budget.

trying to get a house in nyc is laughable. got a couple mil? and that’s not even for something fancy, that’s a standard building. i know some folks that own their homes, all of them purchased back in the 70′s when the city was much more vicious. of course they’re sitting pretty on multi million dollar homes on tree lined streets now! lucky ducks
i assume if we left nyc we could find a place, but why bother?
i’m surprised that a friend my age already is mortgaging a place in nj. i think the root of my fear of owning is the paperwork- oh geez! i can barely read all the way through a lease, much less some crazy bill for a million dollars to be paid over 30 years. that’s just too big of a price/timeline for me. this month’s rent, due on the 1st, no dogs? i can handle that.
plus home value fluctuations? i couldn’t deal with that, my head would explode from the stress.
last point on this rambling comment: i am so shaky with the idea of buying houses, but we brought out an old “Life” board game which cleared up a lot of things for me. you buy it for $x, sell for $y a few years later and hope y is more than x. my husband says there’s more involved, but if that’s the basic idea i want none of it. it seems like a gambling situation, but with the largest amount of money you’ll ever deal with, and also your home. the stakes are too high and the rental market too good for me to take part in home ownership.

Yeah, nothing like paying rent on a place you already own. Of course anywhere you own, you are going to pay the government rent for the privilege of living there. You’re $220k house might be payed-for free and clear but miss a yearly $6500 payment and Uncle Sam will take your house.

Talk about paying for convenience…I rent/pay my landlord to think about all those things for me. Considering the headaches he talks about with the city on zoning, who fixes which sidewalk, inexplicable citations from sanitation, and tax re-assessments….

oy, fergetaboutit….

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Paulasays:

13 January 2014 at 2:00 pm

Our parents always stressed to us that it was so important to own a home free and clear by the time we retired, and we have found that to be some of the most valuable advice we ever received.

Our fifteen year mortgage on this house was paid off right before my husband became disabled with Parkinson’s Disease and had to take early retirement. I had lost my job in the recession. We lost our insurance. He was uninsured for three years until he was on medicare. I will finally have insurance next month. If we had had a house payment or rent, we would have never been able to deal with paying our medical expenses. We made it through a very hard time because we owned our home.

I grew up among people who considered people who were still renting in middle age shiftless and improvident. There is security in owning a home, however modest. There will never be security in renting, unless your crystal ball says you will be filthy rich and nothing bad will ever happen to you.

Congratulations on paying cash for your first home. That’s quite an accomplishment. While you were saving with your gazelle-like intensity, did you have separate retirement and/or emergency fund savings?

Hi! I read Crystal’s blog regularly; and in case she doesn’t see your comment, I thought I’d chime in (although you can easily find the answer to your questions in her “Monthly Financial Checkups” on moneysavingmom.com):

They keep 6 month’s worth of living expenses as an Emergency Fund and are currently (aggressively) saving in order to boost that to a year’s worth. Their IRA’s are fully funded, and they contribute 10% of their income to their retirement savings. They also give very generously to church & charity and are saving to purchase commercial real estate.

Wow! You guys must be from a large city on the East or West coast. Not all low cost areas are tiny rural towns. Most of the center of our country is filled with small to large cities with affordable housing AND good jobs and schools. You may make a little less money, but it will certainly buy you more.

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Dessays:

23 January 2012 at 12:24 pm

Its funny what people from very large cities think of even average cities Its like you think you have to choose between NYC and backwoods. Really, you can’t picture anything in between?

I’m a little surprised about the hostility here. Obviously buying something in Manhattan isn’t going to work the same way, but there’s a whole lotta world that ain’t Manhattan (this may be news to New Yorkers, it seems).

For those of us who want to get/stay out of debt, this is an inspirational story.

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imeldasays:

23 January 2012 at 7:50 pm

Alright, I’ll say it: for those of us who are not white (or black), everything else might as well be backwoods.

Wow, that is one of the most narrow minded comments I have ever heard. I think if you stepped out of your teeny little minded box you would find that there are LOTS of places in the US that despite being smaller towns are quite cosmopolitan. In fact I remember hearing a LOT more racists comment in the suburbs of Bosten than in my sleepy little town.

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imeldasays:

24 January 2012 at 9:03 pm

… I’m guessing you’re white?

I’m positive there are plenty of places in the USA that are not diverse, but still welcoming to all kinds. Now, how do you expect me to find those havens?

Believe me, minorities know what it’s like to feel unwelcomed, out-of-place, and discriminated against. It’s not fun. And if YOU think that everyone in the mostly-segregated USA is just jumping for joy at the thought of integration, then you don’t know your history – or current events.

Interesting comment, Imelda. I can’t see the entire thread because I’m replying from the admin control panel. But I wanted to say that I thought I knew what it was like to be in the minority until I went to Peru. Ha. Good one. As a white male in the U.S. and Europe (and even in southern Africa), I’ve never experienced anything like what I experienced in Peru and Bolivia. And it’s not even that people were unkind to me. It’s just that they treated me different, you know? I was always the Other. I had enough intercultural communications classes in college to understand what was happening, but that awareness didn’t make it any more pleasant. This experience has made me far, far more aware of the subtle ways our society treats various minorities, even when we think we’re being nice. And when we’re not nice? Good grief. We’re awful.

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SAHMamasays:

26 January 2012 at 2:37 pm

Seriously? How about Columbus Ohio, where I live? We are 28% minority and 10% foreign born. How about Minneapolis, with a large Hmong population? Or Detroit, with a large Arab population? Or Chicago, with a large… everybody population. Get off your high horse. Life is what you make of it.

This is such an inspiration! My fiance and I jumped in way too soon and bought a home that we can barely afford! Now we’re saving and scrimping like crazy to be able to buy a trailer (in cash) and move out to live on his parents land after we sell the house. Once we get settled there were going to save to pay cash to build our next home. In the mean time we’re saving for a wedding (all cash)and will get married in October and fixing up the house we live in. Live as cheaply as possible for as long as possible. Not having a $1,000+ mortgage every month would be amazing!!! Patience is a true virtue!

A cost you didn’t mention that you avoid when buying a house with cash are the “loan origination fees”…..ranging from $5,000 to $10,000. It always makes more sense to buy with cash than financing, even with “low” rates. Congratulations on your debt free home purchase. Life without a mortgage is wonderful!

Actually, in my limited experience, it seems less dependent on how much you are mortgaging and more dependent on who sold you the loan….we sold a home a few years ago for about $300K and the buyer wanted us to pay “closing costs” which *I Think* are the same, and they were about $8K!

Loan origination fees are a component of closing costs but not the entirety. They also include things like realtor commissions, document fees, taxes, and title insurance. Loan origination fees generally run 0.5-2% of the amount of the loan. So depending on the actual rate you could be talking about a mortgage anywhere between $250K and $2M to have loan origination fees of $5-10K.

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Lisasays:

23 January 2012 at 1:40 pm

Thank you for the clarification, Courtney.

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Heathersays:

23 January 2012 at 6:39 am

Buying home with cash is an awesome acheivement, but I think that buying a home in cash has more of a psycological benefit than a true financial one.

DH and I also rented for several years before buying a house with a mortage and a low interest rate. For me, I would rather have liquid assets and mortage debt than a fully owned home and little other savings. I also live in a low cost of living area, so I could have purchased a tiny starter home with my savings if I wanted. In some areas of the country, this is not reasonable.

Rather than buying a starter home, we purchased a house that we hope to live in for a long time, if not forever.

You’re absolutely right. In fact, the term “starter home” is insulting. Many people live their whole lives quite respectably and comfortably in what snobs call starter homes, and they’re never been “underwater” or in danger of losing their home when times got rough.

Wait until you’re older with health issues and retired. Then see if the benefits of living in a debt free home are just psychological.

Thanks for the inspirational story. I would really like to pay cash for our next home. Right now I am struggling with how much of our liquid savings to use for a down payment. With interest rates so low, it seems like it makes sense to keep some liquidity.

Do readers have any thoughts? How much of your liquid net worth, not including a healthy emergency fund, should you put towards your house? Like I said, having extra cash feels so safe right now, especially with the economy the way it is. But having a smaller mortgage payment or NO mortgage payment also sounds appealing.

One more thing I will note, thinking about buying a house for cash has definitely kept us from getting to crazy with our housing budget, even if we do not end up doing it right now.

Save in a bank and your money value shrinks because of inflation. Invest the money and you’re taking on risk of losing it. Pay for a mortgage and you lose money to interest which you may or may not make up with the money you’ve invested. Pay for the house outright and you’ve really committed to staying put somewhere and there are sunk costs associated with closing.

All the decisions can give you what you want.

Lots of cash can mean a lot of flexability in your life, to move, to risk, etc. You could make good to a lot of money with smart investing. You could have the house you want and do well in investing and just accept the interest payment. You could own your home outright and be secure that even a part time job will likely let you get by.

There is no best answer. There is risk in doing nothing and in doing anything. So the only real question to answer is what is it you want?

First of all, congratulations – I really admire your intensity and determination and don’t want to disparage your effort. However, as many folks here point out, what you have achieved is only realistic in certain housing markets. Most of these markets (at least in the US) are not situated in areas where well paying jobs are plentiful – so, like most things in life, it becomes a trade-off.
One thing I’d like to mention though, my mortgage is about the same as I would pay for the rental of the same size of property (if you count what I pay for maintenance as well). This means that my “rent” is going towards my eventual ownership of the property. If, in the meantime, I also pay down the principal of my mortgage early, I think we end up in pretty much the same place. The upside to your solution is obviously the freedom to move to wherever you need to to find a job. The upside to my solution (since I live in one of those expensive markets where jobs are more plentiful) is that I get to live in my home while I pay it off. I get to make choices regarding home improvement and becoming part of the community (very important when you have kids).
I’m happy that your choices are working for you and it’s inspiring to hear of people setting goals and achieving them. I just feel that, given the economic reality for most of us, it’s important to note another perspective.

I agree and was going to say something similar. It is important to find that balance between having enough saved to confidently buy a house that you will pay for quickly, and not renting so long that in essence you are paying double (one amount to saving up, and a second amount to rent – granted usually less because the saver would more than likely choose to rent something smaller than they plan to buy).

Agreed with everyone who thinks this is awesome but unrealistic for some. In my area it would be possible. Small starter homes (which, honestly would probably be a forever home for me!) are around $100,000 in decent neighborhoods. But, I make less than $24000K so I save and pay all my bills (and am paying down student loans ASAP), BUT, I can’t afford to save that aggressively no matter how many extra jobs I work (and I do that a lot).

Agreed! I crunched the numbers for my area with a five year time line, and it’s not pretty! I was surprised to see I could manage it if I had a husband who shared this financial goal and who earned more than I do

But if I was married, we would probably be looking at more than a one bedroom condo, so it’s kind of a moot point.

The author mentions but underemphasises two keys to accomplishing this:

– live in a smaller city or rural environment were $100k houses exist
– increase one’s primary income. I’m guessing a Substantial amount of the income came from the law practice. (I could be wrong and would love to see a breakdown by income source, even as percentages). Buying Zenni glasses sure doesn’t hurt, but it’s not where $1700 per month came from.

Again, not to trivialize the author’s accomplishment – they still did something that almost nobody does, and quickly – or that the goal – have cash – applies at 40% down just as well at 100%.

Interesting guess, but I’m pretty certain she was making more than her husband, if not at least an equal amount.

I’ve read her blog for years. I know her traffic; she’s explained it, and how much she charges for ads. Just her 6 sponsored ads alone brings in over $3000 a month. And she has broken down where her income comes from, in percentages–and sponsored ads are NOT the biggest money maker for her–not even close, in fact. She has HUGE traffic, and she’s done really well. Good for her. Should their income stop for whatever reason (if one of them were to die, or be injured and unable to work, or ill) they won’t have to worry about where they’re going to live. They’ll have a roof over their heads.

And what this article doesn’t tell you is that now they’re saving up the money to finance their children’s college educations, so that their own children can graduate from college debt-free.

I agree. I don’t want to minimize their accomplishment. But, the greatest reason, I believe, that they were able to save $100K+ was because her income went up tremendously from her blog in addition to her husband’s successful law practice. Not that being frugal doesn’t help, but it only goes so far.

For someone making much less than that, they’d be scrimping for many years to build up that kind of money. I saved up $70K over the course of about 10 years for my first home with an income between $30K and $60K. It was just a downpayment in expensive Washington, DC. Fortunately, we didn’t wait to pay cash for a home, as the value on our home nearly doubled in the 11 years we’ve owned it.

You have to put things into perspective. I ended up with $100k in debt when I closed down my business. I took a second FT job at $8.50/hr and ended up paying off that debt in just over 5 yrs by myself with no help from anyone. Yes it is possible, but it takes sacrifice and hard work.

One big point is that Crystal and her husband chose to move to an area with lower housing costs. This was key to their being able to pay cash for a house, which was a priority for them. This is not a priority for everyone, and there are those who are unwilling or unable to move to these lower-cost areas. But this does not negate Crystal’s story at all. I congratulate her on setting a goal and following through. We can learn something from her story even if the particulars do not apply to us.

There have been other posts here about moving to areas with a low cost of living… often places that are rural and most of the population is Caucasian. For those of us who are not white and want to bring up our children in places where they aren’t the only ones who have skin that isn’t pink, or who want to be in a place where we have access to culturally significant foodstuff and/or cultural events, a small town in rural midwest might not be an option.

There is a middle ground between SF, LA, NYC and rural small towns. Cities like St. Louis, Nashville, Memphis, Dallas/FW, and Houston are pretty diverse and have cultural opportunities. They also are all below the national average in cost of living.

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LauraEllesays:

23 January 2012 at 8:11 am

Not everyone can move to a low cost of living area. Those areas usually rural, do not have living wage jobs or schools where you would want to send your children. (I believe Crystal homeschools her children, please correct me if I’m wrong. Again, not every family is suited for that.)

I do not see how anyone is denigrating her achievement. People are saying that this achievement is not possible for a lot of people due to limits of having to live where their jobs are. She has her own business (blogging) which can be done anywhere. Her husband has his own business (law practice). They also started out with no student loan debt. Not everyone is in such a fortunate position after law school.

Her achievement is amazing, and it works *for her specific situation.* If they’d had student loan debt or, god forbid, more unexpected medical expenses, their situation might be quite different.

I believe they worked very hard to get where they are, and they deserve major kudos for that. But, you are right – this is not possible in its entirety for everyone. Crystal and Jesse moved to their area to be near their families – which can provide help/support with the children, and did provide strong network contacts for Jesse to set up his business. Agreed – not everyone has these advantages. So…. instead focus on the advantages that you do have and figure out how you can work hard towards a goal that you have. This is one couple’s story meant to inspire – it is not intended as a requirement of exactly what any one idividually should do.
Also, they homeschool their kids because they want to – there are many, many good schooling choices in their area.

Congratulations! I think doing law school without debt was even more countercultural than buying a house without it!

While having absolutely no debt is priceless, I’m wondering if the actual math works out in a down real estate/up rental market. When we bought our home back in 1996, the Philly area housing market was at an historic low. As soon as we signed that mortage we were saving $300 a month (PITI over rent). For sure some of that went to utilities and maintenance, but those items were further offset by tax breaks from property taxes and mortgage interest. For us living in a three bedroom one bath house was actually cheaper than a one bedroom apartment.

Clearly during the bubble renting here was a good bit cheaper than owning and may still be. However we are almost certainly approaching a market here where your rent is so high that it may once again be cheaper to buy than rent.

From a psychological perspective paying cash is always awesome, but I would run the numbers of renting vs. owning if I was planning on putting down roots in an area. Sometimes paying a mortgage really is paying yourself first.

If you break it down financially and do the math you realize it is all a gamble on home prices. If home prices are going up, the best move is to buy the biggest house you can afford. If home prices are going down, it makes more sense to minimize your loss and buy the smallest home preferably with little to no leverage.

My opinion is that real estate is over valued and it will be going down for a long time to come. So I’m in the pay cash for a smaller house camp. (Also, I’d rather have a smaller house and a maid, more vacations, bigger nest egg etc)

It’s also a gamble on inflation. If you’re locked into a fixed rate mortgage, you are in a position where inflation works to your advantage. If you’re saving to buy a home outright, you’re in a position where inflation works to your disadvantage (in the form of increased rent while you are saving, and also eating into any gains you might earn on your savings).

I think you have to be careful when you talk about “inflation”. I agree w/ you 100% if you are talking about home price inflation. That was my point.

If you are talking about the inflation number posted by the government, I believe it is completely reversed (home prices are not directly accounted for in government inflation numbers) I actually thing that government inflation is inversely proportional to home price inflation. If the cost of food, energy, and consumer necessities goes up then there is less money to spend on housing. This can really cripple you if you have a mortgage.

I wasn’t talking about home price inflation OR a situation where you have a mortgage vs. a paid off house. I was talking about the effects of inflation on your ability to save up enough cash to pay for a house in full, while your rent may be increasing (thus lowering the amount you have available to save) and any investment gains (as a loose term) are being negated by inflation. Neither of those are a variable when you have a fixed rate mortgage. The main “benefit” to borrowing for a home is that the nominal cost of the mortgage decreases over time as normal inflation takes place (i.e. your $1500 mortgage payment in year 1 is effectively only $1200 in year 10).

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Andrewsays:

23 January 2012 at 7:39 am

Owning a home is not the only reason we were put on earth.

I am so tired of people who equate home ownership with virtue (and I write as someone who owns a home with no mortgage). The author never comes out and says it, but implicit in every line is the belief that nothing else matters–why have a real life when you can own a house?

She’s as consumerist as anyone else–she just has one large hard-to-resell asset instead of many smaller ones.

refreshing perspective!
my goal in life is to do some long term rentals somewhere tropical and warm. i commented above on how i’m not enthusiastic about buying a house- the idea that you have to stay in one spot for so long bothers me (that’s probably just me being weird and nomadic). if i happened to own a house, i would sell that asap, put the money in a giant rent fund, pack my bags and go somewhere nice. even then i would be skittish about buying- what if something happens? what if i get sick of living there, or the housing market collapses? pick up and go somewhere else- it is not your problem!

I’m nomadic (also a little weird) but I wouldn’t let the fact that I’m a homeowner interfere with that.

I bought my tiny little starter house (with a back apartment) in a vacation-y spot in a decent part of town and plan on traveling long-term in the future. I have a line of people I know who are waiting to rent it out while I’m gone…even just renting out the apartment would cover my mortgage.

I love the idea of having a never-changing landing spot. Like a centerpoint that I can bounce from and come back to. It actually makes me want to travel more. With the amount of my mortgage vs. the cost to rent my house, I could pay a management company to rent it out and have money left over for the mortgage and any upkeep issues that arise, even a couple hundred towards the rent of wherever I’m staying. I could even go live somewhere for a while. If you don’t want to be pinned down, you don’t have to be. It does take some planning, and you do want to buy in a rent-friendly area but it’s possible. There are even house swaps where you can live in another city and eventually swap back. I’m planning a 3 month trip to W. Africa next year and already have interested house sitters willing to take on the mortgage to stay there for the 3 months. They may be visiting from out of town, state, country, continent, or may want a cheap place to stay while they evaluate and save for their next rental.

We too want to travel or make ourselves available for volunteer work while having a home waiting for us when it’s needed. The only way for us to do that, without much income, is to have our home paid off.

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Juliesays:

23 January 2012 at 7:43 am

It is interesting reading all the posts who congratulate Crystal, yet in the next sentence negate the reality of this for themselves. It makes me feel as if so many are missing the point of the post. About the determination of a having and reaching a goal if you make it your priority. Everyone is going to have a DIFFERENT priority. It could be something as simple as a $1000 emergency fund (which is a huge feat for some) or exercising 3x a week. And Crystal does not belittle this on her blog, despite her own grand achievements. If you can get past all the religious stuff on her blog (not my thing but she’s very strong in her faith and I respect that), it’s pretty inspiring and she does her best to help everyone else get where they want to be too. Not all of it is for me (I don’t like coupons for example as they are mostly for junk) but I still manage to find some helpful nuggets every now and then. And the idea of achieving such a huge goal so quickly speaks to me!

Paying cash for a home is pretty unusual and I think it’s natural for people to look at Crystal’s achievement through the filter of their own experience. I don’t think it negates her accomplishment or misses her point to acknowledge that this particular goal isn’t possible for many. Personally I find the discussion interesting as I get a little bored when the comments are just a variation of “you go, girl!”

Oh, don’t get me wrong, I definitely find it interesting too, or I wouldn’t be reading it. And I’ve thought about paying our own mortgage down super early, but I’m not willing to give up travel (our priority) in order to do it. But, I do feel that sometimes people just think, “Oh, well I will never be able to do that”, throw up their hands and then don’t even attempt a smaller goal that they can feel good about. And definitely see your point about the title/content. However, I still feel the crux of her post is about setting a goal, whatever it might be, and doing what it takes to reach it.

Agreed! While I understand most people couldn’t pay cash for a house in that short of a time frame (depending on where they lived, mostly), it could still inspire many to save up a $100,000 down payment (also not very common) on a more expensive home. Or why not? Save up for a completely different goal altogether.

No post is going to apply to 100% of readers, but that doesn’t mean you can’t get something out of it.

the pressure is weird. when my husband and i were still engaged, several family members approached us about buying a house. one relative commented “well how are you going to take care of her?”
…………………….(i can live in an apartment just fine? also i can take care of myself i just prefer spending time with mr. cc?)
it was weird, having everyone pile on more possible responsibilities. what about throwing a big wedding makes people think we should go house shopping too? needless to say there was baby-encouragement-talk in there too (ugh). whyyyyy must people lump all these things onto fiancees/newlyweds? one thing at a time, please! we’re not even done thank you cards, that means we are not ready for babies or houses.
also i dont like babies. please, someone, distribute the memo.

The buy-a-house-to-have-a-baby pressure, internal and external, is weird – when I was pregnant and pretty much unable to do anything, and then again when we had an infant, I would have LOVED to have traded in our house for a nice little apartment where the landlord handled repairs, upkeep, and yardwork. The idea that you ought to have a house to have kids seems like it overlooks what a big commitment of time, money, and energy each one of those things is.

maybe it’s a generational thing? the people suggesting that were definitely one generation up- none of our friends or siblings were handing us real estate brochures. i suppose the wedding/house/babies was the norm for a long time, but times have changed, etc.
it’s like i tell the pro-baby encouragers: if i wanted a baby, i would have had one a while ago, it’s not like a thing like it used to be. i want to get married so we’re just getting married.

Congratulations!!! We bought our home when we had 20% to put down in 2007, but we are aiming to pay it off this coming May, so 5 years from our closing date. We probably should have had more patience, but too late now, lol. What 23 year old has patience, right? We’re trying to get to your point as fast as possible though.

People, calm down. She isn’t recommending this for everyone. She is just relating her own experiences.

The people who are complaining that this won’t work for everyone are (a) just negative whiners and (b) are missing the point. The point of the story is that perseverance and sacrifice in the short term often pays off in the long term. Is that so hard to comprehend or even compliment her on?

You guys are like people who mutter that they have a glandular issue and that is why you can’t lose weight, all the while neglecting to consider that McDonalds should make up 40% of your meals.

I agree and disagree. It helps to see both points of view, and people can take what they want from the post or the comments. I doubt Crystal is writing to fish for compliments

I keep coming back to this post because it really has me thinking about what I could do if I went totally hard core saving for a down payment. (While still saving for retirement and being able to give back, of course). Likely I won’t be able to pay cash for a home where I live, but I could certainly make a more modest goal and make some serious headway.

Please don’t be so quick to assume that just because people are saying “this won’t work for me,” that they are complaining about the post!

Personally, I think it’s an interesting discussion. It’s nice to hear about Crystal’s awesome achievement. It’s also nice to have others remind me that this can’t be done by everyone.

And I love when people provide the specific numbers for their areas. For example, I was surprised to hear about the person who bought a house for around $260k in the Boston area, as that is more reasonable than I expected.

Wow!
Great job. I’m reminded of when we paid off our second house and all our income properties against the advice of our CPA. Now it is 15 years later and my then-husband and I have divorced (from a 30 yr. marriage) and have gone our separate ways. We divided our paid-for properties and came out way better than average for divorced persons.
Life doesn’t always go as we expect it to and it is always a sound plan to have your financial house in order.
I wish your family the best.

i can’t for the life of me, figure out why anyone on this blog would pay cash for a house.

if someone was financially irresponsible, it would make sense to pay outright. you put the money into an asset before you can waste it while remaining in debt.

however, i thought this blog was for more financially responsible people that were looking for smarter ways to control their finances. i would think it would make more sense to put the smallest downpayment necessary, and get a low fixed rate 30 year mortgage. then take the rest of the money and allocate it amongst stock and index funds. over 30 years, and you’ll be in a much much much better position than paying for everything in cash.

I’d hardly say I’m financially irresponsible and I own property outright. I also have $$ in the stock market and other investments. I see it as a means of diversification for serious savers; it also lowers your monthly bills and increases savings.

if you can borrow money at a lower interest rate than you can earn investing, then you can make money borrowing. with long term interest rates as low as they are, over the course of 30 years, the ROI of a properly allocated portfolio will beat the current mortgage rates.

in this case you save LESS, by paying upfront.

i agree that your monthly bill would be lowered if you paid for everything up front. however, you would have a very very large cushion of liquid assets (equity and bond index funds) to fall back on if you needed money. this is a far more safe (and profitable) position to be in. think of it this way. would you rather have $0 and no monthly expense, or have $200,000 in the bank, and pay $1,000 every month over 30 years. at any point during those 30 years, you have some liquid assets to fall back on in case of disaster.

most financial experts would agree that buying a home significantly reduces your diversification of investments. you would increase your exposure to the real estate investment, however you would have a very high concentration in ONE ASSET that is illiquid. if you want exposure to the real estate market, you’d be better off buying a REIT fund, as it is far more diverse than owning one property.

the problem is, it’s hard for some people to kepp hundreds of thousands of dollars locked away untouched for years. the amount invested should be equal or greater than the amount of debt on the mortgage. this is too tempting for many people. i just figured the people here know better.

The thing I find interesting is that the people who tell you to not pay cash for your house (and all the negatives for doing so) also tend to be the people who earn a commission for selling you their investments. The fact is that many people do not have enough deductions to itemize their taxes,so the mortgage deduction doesn’t apply in most cases. If you have no mortgage, your housing costs are greatly reduced and all the excess cash can then be used to invest. I’d much rather have that to fall back on in a time where the economy is still struggling and job losses continue to persist.

When banks loan you $ for your house for 5% interest, they are investing in your mortgage agreement. This 5% return is attractive to them. If you buy the home cash to save that same 5%, you are making the same investment for yourself that the banks would have made. The 5% they would have made was attractive to them so the 5% you save should be attractive to you.

For you to say that the same investment is better to be thrown at the stock market is naive because that implies that every bank that invests in mortgages is dumb and wasting the opportunity of instead investing that mortgage money into the stock market. I find it amazing that people have so much faith in the stock market as being such a safe place to put ALL of your cards… I personally know TONS of people who have lost SOOOO much in the stock market. Just buy your homes cash people. One less thing to worry about. Then save and invest in higher risk things if you want AFTER the home is crossed off your list.

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Jen from Bostonsays:

23 January 2012 at 8:52 am

Congratulations! If you can pay cash, that’s the way to go, IMO. I’ve read personal finance experts who say tying up that much cash in your home is bad, but not having a mortgage gives you much more freedom. If you have to relocate now you can rent your home for a decent price and not worry if the rent will be enough to cover your mortgage.

As others have mentioned, though, depending on where you live paying cash may not be possible, unless you’re very wealthy. I live just outside Boston and there’s no way I could have paid cash for my first home. Perhaps if I ate ramen every day and never bought new clothes ( and I am NOT a clothes horse)… But, applying the same discipline to paying off their mortgage early as you did to saving up cash for your home is a very good goal. That is my main financial focus now that I’m fully funding my 401(k) and I have an emergency fund.

I think it’s great the writer was able to pay all cash. For those who are diminishing her accomplishment with the (very obvious and true) fact that you can’t buy a house for $100,000 is many parts of the country, I think what she and her husband did with the money is less important that the fact that they saved ONE HUNDRED THOUSAND DOLLARS in 2.5 years! That’s incredible! Maybe we aren’t all able to do that, but what about half that? What about saving up for a new car in 3 years? A fancy new oven? A nice family vacation? Whatever it is, I think the biggest thing to take away from this article is that a clear goal, a defined plan, and a disciplined approach can help you achieve a pretty amazing goal, whatever yours may be.

I get that people say this would only be possible in certain markets or for a starter house or etc. But it is possible, and if this couple saved $100,000 in 2.5 years they probably could have saved $200,000 in 5 years. Even if that would not be enough to buy a forever home is a high cost area, that is still a heck of a lot of money for a down payment allowing a family to pick a much shorter mortgage term and avoid hundreds of thousands in interest.

Rather than saying I can’t do this because I live in a high cost area or because of xyz, I look at this story as motivation, if this couple can save $100,000 in 2.5 years, maybe we can save that much in 2.5 years or pay down our mortgage that much, etc.

Crystal, where did you keep your home savings? In an FDIC insured savings account? If you were expecting to wait five years I can see putting the first couple years of savings in CDs or even in an index fund. But you ended up using the funds sooner than anticipated, did that complicate the way you planned to save?

I think she still has a fair bit of money in the bank…emergency fund, college savings for kids, retirement…plus I think she’s giving all the proceeds of her book to charity. She’s definitely not got all her eggs in one house/basket…they are pretty set from what I’ve read on her blog.

I read her blog every day. I think Crystal and her husband have worked very hard to have the money and achieved their goals (not just for themselves but for helping others, too). That’s very inspiring.

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Juliesays:

23 January 2012 at 1:18 pm

Yes, they are far from trust fund babies…that’s not what I meant when I said they were “set”. They both appear to work very hard and do without certain niceties (that many others would not be willing to forgo) in order to reach their goals. I was just noting that they did not buy a house for cash without considering the other things like an emergency fund, retirement, etc. It all seemed pretty well thought out. Everyone does things differently. There are many things they do that I wouldn’t do, but that doesn’t make them any less inspiring.

I salute them working together as a couple and having saved such amount.

But there are several other things that I find missing that are important before buying a house in cash.

Have they saved anything for their Retirement? Do they have at least 3 – 6 months emergency funds? Having two children,
I think emergency funds are critical.

I am also kind of person who is for paying off house quickly, but there are other critical steps before this step. Even Dave Ramsey talks about this. When I bought my house I put down 40%, did not listen to realtor when he said I could afford more, I stuck with what I was comfortable. And every year, I make sure I pay 2 extra payments.

By Buying a house with cash, or paying off to quickly, I would not want to be “House Poor”, with no cash on hand. I think it is a balancing act.

RIch Habit,
If you take a look at her website, you will find the Paine family has emergency funds, living expenses set aside, college funds for their children and retirement. They have been a great inspiration to my family as we are similar in age/number of kids, etc.

Awesome post! I want to do the same thing and have similar goals, only I’m single with one income. I started a blog at http://www.youngcheapliving.com to help me stay motivated and accountable for continuing to save and prepare for buying my first home. All I have to say about what you did is that it’s simply awesome. I really hope I am able to buy my first home in cash as well. If I do end up making it, I want to be able to tell everyone about it and help motivate them to do it too just like you are doing here. Again, great job!

I think a lot of people are getting hung up on the fact that they can’t buy a house for $100k in their city. But look at the takeaway: Crystal was able to save $100k in 2.5 years. That’s amazing! Even if you can’t buy a house outright with that amount, what a great down payment that would be! Or…think of all the other things you could do with that amount of money.

I think the people who then say, but most people cannot afford to do this because housing prices are higher where they live, are missing the point. They saved 110K in less than 3 years. Whatever their goal was, they were able to do it by believing in it (and yes, using gazelle intensity) ; ). Even though owning a home outright is not highest on my priority list, this story is inspiring because it makes you wonder what could be possible if you applied it to your life. It’s all about priorities. And I like the idea of (relatively) short term pain to achieve a big objective (versus 30 year mortgage).

I saw on another blog that you paid cash for your house, jumped over to your blog to read it but the writing was so jumbled I gave up. So glad I finally got to read about your journey, albeit a condensed version!

I got through the first three of her nine post series and all I could get out of it was “God wanted us to do this, have it be our goal, and he provided”. It was hard to see her actions and their planning methods through all of that, especially because that structure forced her to put all human action in the passive voice. Very frustrating for someone who just wanted to know how they managed to save $100,000.

Crystal, it’s amazing that you were able to apply yourself and focus on one goal so absolutely, even if you do think you might have gone overboard a bit. It’s exciting to see anyone work so hard to succeed at a goal.

For those of you that think this story doesn’t apply to you, does that mean there is nothing you would work that hard to accomplish? $100,000 would be a substantial down-payment on any home, even if it’s not 100% of the cost. And working hard to pay off that amount of student or consumer loans in 2.5 years would be just as impressive. This story isn’t about how lucky she is to be in this situation, it’s about how hard work and focus can lead you to do amazing things. Thanks for the inspiration!

- Husband is an attorney
- No school debt
- Able to relocate
- Stay at home mom (i.e. no child care expenses)
- House for $100K

This sounds EXTREMELY fortunate, and doesn’t fit the profile of a vast majority of people:

- Both parents work for moderate incomes
- Work long hours because they HAVE to, not because they can
- Outrageous child care expenses
- A significant level of student loan debt
- Little to no reserve funds
- Unable to relocate due to various reasons
- “Ordinary” housing costs

So, yes, you’ve accomplished a great deed – I hope everyone can aspire to something just as great.

You are missing the point. These things didn’t happen by CHANCE, but by CHOICE! He chose his career, they chose their location, they chose to work hard to stay out of debt. The point is that they made these decisions consciously ahead of time rather than just floating along doing what everyone else does. (And being a SAHM doesn’t save them money, it net costs them money because of the lost income for all but the most minimally-employed spouses.)

So many people say “I could never do that because of my particular circumstances”, then proceed to eat whatever they feel like, drive the best car they can borrow for, and go on vacation every year. Those people aren’t being honest with themselves. If good food, travel, and living in a high COL area is what they value, great. They should say “I choose not to do that because I value other things” not “I can’t…”

Husband is an attorney – WOW! You know people become attorneys through hard work, right? People aren’t born attorneys. Many people apply to law school and can’t get in because of low GPAs and/or low LSAT scores (meaning they had to have been working hard in College and in order to get into College, they had to have been working hard in high school as well = 8 years of hard work in school). Then approximately half of the first year law school class won’t make it to graduation because of the high failure rate in law schools. Assuming you make it into law school and survive the 3 years of hell, you still have to pass the Bar, which is known for being one of the hardest exams to pass.

Yea, her husband was lucky…lucky to have strong character and the will to succeed. Not everyone is born with such character, Uh-hem, many would rather blame their circumstances on life rather than on their own poor choices. Sure, there are some things you can’t control, but those road blocks shouldn’t stop you from trying to make opportunities for yourself rather than whining about how other people got off better as though through magic.

He was also lucky to have someone scrape and save so that HE could end up with the law degree.

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maewallysays:

23 January 2012 at 9:47 pm

And, to add to that, her husband, by choice, with a bigger goal in mind, drove to court in an old van with a broken driver’s side door, crawling out the passenger side. I think that is another testament to his character, and the hard work and patience they were willing to put forth to make a goal a reality. Many lawyers are also going to start their careers with a ton of student loan debt and sometimes even a fancy new car to match the status they think they have now that they have a great title. Crystal and her husband had a few years under their belts with a pretty slim income and managed to stay debt-free. This doesn’t just have to do with a lawyer’s good income!

I like this a wonderful idea, though I do wonder how much they spent in rent. We ended up buying because our mortgage would be the same cost as rent plus since we bought a duplex we often are earning income that we would not otherwise be able to earn.

They did say they downsized to a smaller rental so their rent would be lower. And don’t forget to consider appliances, home repairs/maintenance, lawn maintenance, etc that you don’t pay for when you rent. So many people forget that when they are buying. Renting can still be a lot cheaper, even if the rent/mortgage is similar when you factor in those costs.

Cash truly is king! Paying for automobiles, furniture, houses, etc., with cash makes all the sense in the world. Even in a low-interest-rate environment, paying interest on loans is a loser’s game. Those who make the money before they spend it will always outperform those who spend it before they make it. Thanks for sharing your experiences!

Wasn’t Crystal’s story presented so we could not only learn from it, but give her ideas our own twist? If you’re not agreeing about a house, use it to pay cash for your car, like one respondent said (good for you!)…or your next insurance payment (no extra fees!)…or your laptop. The feeling of Not Owing is really, really refreshing.
Houses in the Denver, CO area can range from $70,000 (for a condo) to millions of dollars. The median for a two or more-bedroom house seems to be in the $250,000 area…less if you can handle your neighbors staring in your kitchen window.
We had scrimped and saved to pay extra on our mortgage; when Husband received an inheritance, we had a healthy-sized chunk of money that we could use to pay off the mortgage, or invest elsewhere. The current professional advice was “Hey! Stocks are doing great! Pour your money in! Mortgage debt is tax-deductible…who cares?!”
We paid off the mortgage, anyways. (It felt wonderful, but we couldn’t brag, because so many of our friends were still paying.) Then the stock market crash came. If we had shoveled that extra into stocks, a huge chunk of that money would have gone down the toilet.

And BTW, we’re currently considering buying a property in Michigan for $30,000. (Yes, it’s in bad shape, but can be fixed up.) So the bargains are out there, if you look and are patient. That’s the key.

I completely agree with your post about doing everything possible to pay off your mortgage. When my husband and I examined it from all angles, it has made more sense to pay down our home mortgage and refinance. We are saving hundreds of dollars in interest every month, much more than we were “saving” in our investments and savings accounts.

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